The class-action route

Legal approach necessary but troubled

PamMacLean

SAN FRANCISCO (CBS.MW) - Most Americans don't realize it, but almost everyone in this country has been party to a lawsuit or will be one day.

"lf you listen to the idea on paper and divorce it from the way people operate in the real world, it sounds good."
Lawrence Schonbrun,Attorney

Consumers who bought certain cars, contact lenses, plastic pipe, laptop computers, or breakfast cereal were members of recent class action suits. Whether the claims involve product liability, corporate mismanagement or mass injuries such as tobacco-related cancer, class actions have become a staple of American jurisprudence.

Class actions also, unfortunately, have come to embody some of the worst elements of the legal system, giving rise to greed on the part of class-members' attorneys and cruel obstructionism on the part of the companies being sued.

In recent years, class-action lawyers have been attacked for turning the procedures into an attorney-relief act, lining their pockets while often providing next to nothing for individual clients.

Some settlements are so small that the cost to print the checks often exceeds the total amount on the check's face. Worse, millions of class members ultimately may be compensated with a savings coupon for their next purchase of a product they considered defective in the first place. But the lawyers reap millions.

Conversely, corporate lawyers have shown disdain for human life and suffering, in some cases "auctioning" settlements to the lowest bidder among the various lawyers representing class members.

Lining pockets

The lawyers who file suit use the potential for huge jury damage verdicts as leverage to get defendants to settle. Almost all cases settle prior to trial because of the sheer numbers of people involved and the potential for punitive jury awards to bankrupt most companies. But not all settlements are accepted by the courts.

For example, a federal judge in Chicago last week nixed a proposed $25 million settlement between H&R Block and customers who received quick loans against their tax refunds. The 1.4 million customers who claimed they were charged usurious interest rates on the loans were to receive $15 each. The lawyers who represented them were going to take home $4.25 million in fees.

When an outside group of lawyers objected to the paltry payments, U.S. District Judge James Zagel withheld his approval and agreed to reconsider the agreement.

The problem with class action suits is the way they have evolved in practice, said Lawrence Schonbrun, an attorney in Oakland, Calif, who challenged the H&R Block settlement. He regularly represents class members opposing the settlements struck on their behalf.

"I would analogize it to Communism. If you listen to the idea on paper and divorce it from the way people operate in the real world it sounds good," Schonbrun said. "People with small problems, that do not warrant a lawyer, get together to get justice that they wouldn't otherwise get.

"But at best it coordinates insignificant claims that people don't care about." At its worst, he said, it may keep people with significant claims from maximizing their recoveries.

Noble intent

How did we get here? It began as a very worthy cause.

Consumer and shareholder class actions still serve as valuable tools to protect the little person who'd otherwise lack access to a lawyer or the courts.

In the mid-1960s, a committee of the U.S. Judicial Conference set about to revise arcane federal rules governing civil lawsuits. The group wanted to expand class actions to aid people seeking school desegregation.

That allowed representatives of large groups of "similarly situated" people, such as African-Americans, to join in a single court challenge to overturn segregation. The rules are still regularly used to curtail discrimination against women, the handicapped, and racial and ethnic minorities.

In the 1980s, lawyers began to file more and more class actions on behalf of consumers, shareholders and people injured in some way. While it isn't economical to hire individual lawyers to fight a company that cheats many people out of small amounts of money, it can pay to bring all those people together to sue as a group.

Consumer and shareholder class actions still serve as valuable tools to protect the little person who'd otherwise lack access to a lawyer or the courts.

Rules require judges to hold fairness hearings and review settlement terms before they can be approved. Some judges pay closer attention than others do.

In 1996, an effort to revise rules to eliminate perceived abuses in the system failed. After months of investigation and hearings, the judicial committee proposed limited changes, but they weren't adopted by the U.S. Supreme Court or Congress, so they never went into effect.

Mass-injury class actions generally gain the most headlines. These are filed by people who claim their health has been damaged by exposure to such things as asbestos, cigarette smoke, the Dalkon shield, silicon-gel breast implants, the chemical Agent Orange or the diet drug Fen-Phen.

For consumers wondering about the status of various product liability suits, there are hundreds of contested products listed on litigation Web sites. There also are hundreds of securities class action suits filed by stockholders who believe corporate executives did something improper or ill-advised that damaged the company and its stock price.

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